FG’s borrowing from CBN hits N19tn

The Federal Government’s total borrowing is now standing at N19.01 trillion, moving from N17.46 trillion as of December 2021.

According to the Central Bank of Nigeria (CBN), this represents an increase of N1.55tn within the first four months of 2022.

The N19.01tn owed the apex bank by the Federal Government is not part of the country’s total public debt stock, which stood at N41.60tn as of March 2022, according to the Debt Management Office.

The public debt stock only includes the debts of the Federal Government of Nigeria, the 36 state governments, and the Federal Capital Territory.

According to Section 38 of the CBN Act, 2007, the apex bank may grant temporary advances to the Federal Government with regard to temporary deficiency of budget revenue at such rate of interest as the bank may determine.

The Act read in part, “The total amount of such advances outstanding shall not at any time exceed five percent of the previous year’s actual revenue of the Federal Government.

“All advances shall be repaid as soon as possible and shall, in any event, be repayable by the end of the Federal Government financial year in which they are granted and if such advances remain unpaid at the end of the year, the power of the bank to grant such further advances in any subsequent year shall not be exercisable, unless the outstanding advances have been repaid.”

However, the CBN has said on its website that the Federal Government’s borrowing from it through the Ways and Means Advances could have adverse effects on the bank’s monetary policy to the detriment of domestic prices and exchange rates.

“The direct consequence of central banks’ financing of deficits are distortions or surges in monetary base leading to adverse effect on domestic prices and exchange rates i.e macroeconomic instability because of excess liquidity that has been injected into the economy,” it said.

In June last year, London-based Capital Economics, in a report titled ‘The perils of deficit monetisation in Nigeria’, noted that over the past six years, on average, around 55 percent of annual budget shortfalls has been financed by the CBN.

“Many of the problems plaguing Nigeria’s economy – from high inflation to a persistently overvalued currency – are tied to the government’s sustained reliance on the central bank to cover fiscal financing gaps,” it said.

The World Bank had in November last year warned the Nigerian government against financing deficits by borrowing from the CBN through the Ways and Means Advances, saying this put fiscal pressures on the country’s expenditures.

The Washington-based bank added that the Federal Government’s borrowing from the CBN was increasing the cost of debt in the country.